The Bitcoin community has had a lot of excitement in recent months. Of course, the reason for the excitement has been the possibility of a hard fork and then the last minute cancellation. For those of you who have been out of the loop, let’s have a fast look at what's going on.
Bitcoin’s Scalability Problem and the Hard Fork Solution
A Bitcoin block is a combination of multiple transactions. It's like a page of a ledger. Today a block size is limited to 1 MB. Any block beyond 1 MB size is automatically rejected by the Bitcoin network. The block size limitation has a restrictive effect on the number of transactions that can be processed in the network. As a result, fees have gone up and processing times have increased.
Initially, the block size wasn’t a problem because there weren’t that many transactions. But as Bitcoin grew in popularity, the transactions have started to pile up and wait times have grown. With a larger block size, miners would be able to process more information in a single block. This would decrease the processing time.
A proposed solution for the scalability problem is SegWit2x. In the SegWit2x solution, the Segregated Witness (SegWit) would be activated as a first step (already done in August 2017). SegWit separates the digital signature from the transaction data to increase the block size without changing the actual limit.
The next planned step was to increase the block size to 2 MB. But the block size increase would mean a “hard fork” because the older software wouldn’t be able to validate under the new rules. So there was going to be two blockchains coexisting, one using the old rules and another following the new rules.
The hard fork was supposed to take place in mid-November. Recently, the lead developers of the SegWit2x solution has informed the community that they are not going forward with the hard fork.
Implications of the Hard Fork on Bitcoin